Powers of Attorney: Medical versus Financial

By
|October 30, 2017

Powers of attorney are utilized for financial decisions and medical decisions.
One is responsible for safeguarding your assets; the other, your life.

So, what does a Medical Power of Attorney do? What exactly are their responsibilities
as far as your estate plan is concerned? And what type of person should
you choose for this ever so important, extremely vital, and in some instances,
life-or-death role?

In its most basic sense, the person who possesses the medical power of
attorney will make decisions for your health care should you become incapacitated
or no longer mentally competent. This is the person who will determine
if you live or die, if you have children, or if you ever walk again, depending
on the individual situation. So, yes, taking your time with this one and
really giving the matter your utmost consideration is extremely important.

Case in point: A female client needed back surgery. Unfortunately, during
the surgery, complications arose and the doctor informed my client’s
son (who subsequently held medical power of attorney) that either they
amputated her legs thus giving her close to a 100% chance of survival,
or she would only be looking at a 60% chance of making it. The son chose
the amputation. When the mother awoke post amputation, she was absolutely
devastated. This was not at all what she wanted. She would have much rather
faced that 40% chance of uncertainty than be condemned to a wheelchair
and utter reliance upon others for the rest of her life. The son made
the wrong choice; not that he didn’t have his mother’s best
interests at heart, but he didn’t truly know his mother as far as
this decision went; he failed her wishes.

This demonstrates how critical it is to have a serious conversation with
the person you choose so that the person knows your true wishes about
living and dying and what quality of life means. Also, this is an example
where someone like a child may not be the best choice because making a
decision that increases the chance of death of a parent is not one that
many children will make. The choice of your agent for your medical power
of attorney is undeniably one of the most powerful roles you are giving
someone in regard to your life.

The remaining part of this chapter is incredible boring. If you are not
planning on serving as a power of attorney. You can skip to the next chapter.
However, if you are planning on serving as a power of attorney, you need
to take the time to go through it. Too often I find, that agents really
don’t understand the responsibilities of being a fiduciary.

What of the Financial Power of Attorney…This person is not concerned
with matters of life and death, but rather with those legal, practical,
and business-related issues pertaining to your finances. What factors
do you need to consider when trying to decide who should act as Financial
Power of Attorney over your estate?

First, it’s important to understand the various duties associated
with this position. Generally, we look at the role of the financial power
of attorney in terms of the fiduciary duties to which they must attend.
These are consequently among the highest duties imposed by law.

Duty of Care

In Texas, this particular duty is defined as “an ordinarily prudent
man would use under similar circumstances.” The key word here is
“prudent.” The problem often comes when people assign their
children this role. An offspring is not necessarily equipped to handle
the duties associated with your finances or with the legalities of your
estate. People seem to be automatically programmed to use children as
their go-to agents for their POA’s and here, unfortunately, is where
I most often see problems arise.

With this particular duty, the agent needs to take everything possible
into account, they need to do their research and understand all facets
of the issue, and, then, they must act prudently, in good faith, and with
sound judgment. Children, very often clouded by emotion, by grief, or
by complicated family attachments, don’t necessarily have the clarity
to act in the estate’s best interests, and, therefore, they fail
to adequately preserve that estate. Or, it may be the case that the child
simply isn’t financially responsible and doesn’t have the
ability or inclination to act prudently.

Duty of Loyalty

Hand in hand with duty of care is duty of loyalty. Basically, this fiduciary
duty requires the agent for the POA to remain loyal to the estate. So,
what does loyalty entail? Avoiding and /or reporting conflicts of interest,
keeping all information confidential when applicable, and seeking legal
advice when matters do arise which seemingly are in conflict. The bottom
line here is that the agent needs to put the estate first above his/her
own interests. And again, a child and/or a spouse could easily come up
against issues in which it is difficult to remain impartial and serve
only the interests of the estate itself.

Duty of No Self- Dealing

Very much in line with duty of loyalty, duty of no self -dealing essentially
means that the agent for the POA will not use their power to benefit themselves
as far as the estate is concerned. This duty ensures that the agent does
not abuse his/her authority and does not misappropriate any of the estate’s
assets, thereby advantaging themselves at the expense of the beneficiaries.

Duty to Act in the Best Interest of the Principal

Again, as with the aforenoted duties, this duty requires that the agent
named for POA act in accordance with the principal’s wishes, honoring
their legacy and estate planning. As with all other such duties, they
must act in good faith, fairly, prudently and as would most correspond
with the directives of the principal. The named agent is expected to act
within the scope of the authority thus granted.

This just touches on the various fiduciary duties imposed on the agent
of a financial power of attorney. Additionally, beyond the larger responsibilities
and more moral obligations, under the Durable Power of Attorney Act, your
agent for your financial POA must:

- maintain records of each action taken or decision made on behalf of the
principal;

- maintain all records until delivered to the principal, released by the
principal, or discharged by a court; and

- if requested by the principal, provide an accounting to the principal
that, unless otherwise directed by the principal or otherwise provided
in the Special Instructions, must include:

(A) the property belonging to the principal that has come to your knowledge
or into your possession;

(B) each action taken or decision made by you as agent or attorney in fact;

(C) a complete account of receipts, disbursements, and other actions of
you as agent or attorney in fact that includes the source and nature of
each receipt, disbursement, or action, with receipts of principal and
income shown separately;

(D) a listing of all property over which you have exercised control that
includes an adequate description of each asset and the asset's current
value, if known to you;

(E) the cash balance on hand and the name and location of the depository
at which the cash balance is kept;

(F) each known liability;

(G) any other information and facts known to you as necessary for a full
and definite understanding of the exact condition of the property belonging
to the principal; and

(H) all documentation regarding the principal's property.

Therefore, you can see how essential a choice this is to make as far as
the management of your estate goes. It has been my experience that it
is best to first look to your spouse to fill this role. Usually, this
is a solid choice and perhaps the person who understands your financial
situation and subsequent wishes most intimately. However, it could be
the case that your spouse isn’t in a position to handle estate matters;
for instance, they may not be able to manage large sums of money. For
whatever reason, you would then want to look to a Certified Public Accountant
or a financial advisor (if the advisor is allowed to by his or her broker-dealer).
Financial affairs, especially of this magnitude and complexity, are often
best entrusted to a financial professional. If you don’t have one—get
one, it’s that important. Often family members aren’t knowledgeable
enough or fiscally practiced enough to handle such estate matters prudently
and effectively. They are more than likely amateurs being tossed into
a ring of big-time financial responsibility without any training whatsoever.
The most likely outcome: knock out in the first round.

The Caregiver’s Conundrum

“Earth provides enough to satisfy every man’s need, but not
every man’s greed.”
–
Mahatma Gandhi

A lady, Ivy came to see me regarding her mother’s estate. She’d
been taking care of her mother and acting as her agent for her financial
POA for quite some time. From years of constant attention and caregiving,
she felt entitled to the use of her mother’s money. Her brother,
on the other hand, did not see things this way. Rather, he basically accused
her of having stolen their mother’s money to the tune of about 1.5 million.

Ivy had purchased a home for her mother and her to live in using the assets
of her mother, but putting the deed in her own name. When she went grocery
shopping, she used her mother’s money to buy groceries for both
her and her mother. She was joint owner of her mother’s bank account
ensuring that upon the death of her mother she would inherit the account.
The list goes on. Righteously, she argued that she had to quit her job,
moved away from her children, and spent the majority of her time caregiving;
therefore, she was entitled to this money. Her brother had done absolutely
nothing. In addition, he had only visited once in the eight years.

I, however, had to show her that while she may have a great argument as
to why she deserves the money, the law was not on her side. In fact, she
had committed multiple civil and criminal offenses. First off, if she
claimed the money was hers, then she must have stolen it from her mother.
If she claimed that she earned it by taking care of her aged mother, then
she had income which she failed to claim on her taxes. Looking over the
evidence at hand and talking to Ivy, it appeared to me as though she’d
misappropriated over $300,000 of her mother’s money. Her brother
could actually, in this case, ruin her life.

Adamantly, she insisted that this is what her mother wanted. Again, trying
to reason with her, I pointed out that she was an agent for her mother
because her mother was mentally incapacitated, which meant that any wishes
expressed during this time would be invalid as she was not of sound mind.
Rather, it was the will created while her mother was mentally competent
that would hold up in court. That will incidentally showed that the mother
wanted her property and assets distributed equally among her children.

Had a financial advisor or legal professional been given POA in this instance,
Ivy would not be in a very precarious situation. This third party could
have walked Ivy through the proper way to be compensated for her work
and time. The family might not be at odds and the estate matters would
most likely have been settled without such rancor and much more smoothly.
The fact of the matter is, had the woman not been the agent for the financial
POA, but rather that role given to a financial advisor or other financial
professional, she would not have had the chance to misappropriate her
mother’s funds and land herself in some potentially big trouble.

I have had clients argue that the way in which to avoid the need to appoint
a POA is to co-own an account with their child. Again, maybe not the wisest
strategy when it comes to the neutral, uninvolved and impartial handling
of your money. Carol, a 90-year-old woman, came to see me about $100,000
missing from her bank account. After signing a POA, she granted me authority
to go and speak to the bank on her behalf in order to get to the bottom
of the missing funds. Come to find out, her son was a co-owner on this
particular account. After having failed to pay his taxes, the IRS subsequently
took all of the money from the account. How could this have been avoided?
If she had assigned a qualified agent for the financial POA rather than
placing her son’s name on the account, her money would still be there.

The choice of Executor, Trustee or agent for your Power of Attorney is
not one you make with your heart, or in line with tradition, but one you
make with your head. Yes, you may love your children, but ask yourself
if they are truly in a position to make the best, most prudent decisions
for your estate. Are they capable? Have they dealt with these types of
matters before? And most importantly, ask yourself if you can trust them
to honor your legacy, preserve your estate, and do what’s in the
best interest of all the beneficiaries.

When choosing a Financial Advisor as your agent for your financial POA,
there are a couple of things that you may want to determine first. Speak
to your prospects regarding their ability to act on your behalf if you
are incapacitated. Sometimes the broker-dealer will not allow the financial
advisor to act in this capacity because of the potential conflicts of
investing monies. Secondly, you need to find out if your financial advisor
is a fiduciary. Some financial advisors are not fiduciaries because they
work for the financial institution, and, therefore, appointing them as
an agent for the financial POA might create a conflict of interest because
their duty of loyalty will be with the financial institution of which
they are associated. Finally, there is that nagging question of trust.
The purpose of this chapter--to discover “who do I really trust?”--should
be your guiding mantra when trying to figure out who to appoint as your
agent for the POA. I would hope that you do trust your financial advisor
to be your agent for your financial power of attorney; after all, you
are taking their advice on major financial matters and letting them help
you to make important fiscal decisions. If you don’t trust them
to handle your estate, then why are you using them in the first place?

The information on this website is for general information purposes only.
Nothing on this site should be taken as legal advice for any individual
case or situation. This information is not intended to create, and receipt
or viewing does not constitute, an attorney-client relationship.